JANUARY 26, InvestorBriefing. No TH

Transcription

1 JANUARY 26, 2016 InvestorBriefing No TH QUARTER 2015

2 Highlights and Consolidated Results 1 Business Solutions 4 Entertainment Group 6 Consumer Mobility 8 International 10 AT&T Mobility 12

3 Highlights and 1 Consolidated Results AT&T Caps Strong Year with 2.8 Million Wireless Net Adds and Double-Digit Growth in Revenues, Adjusted Operating Margin, Adjusted EPS and Free Cash Flow in Fourth Quarter 4 Q Full-Year 2015: 11% Consolidated Revenue Growth; Nearly 6% Adjusted EPS Growth; $15.9 Billion in Free Cash Flow Highlights: Fourth-quarter consolidated revenues of $42.1 billion, up 22% versus the year-earlier period primarily due to DIRECTV acquisition Fourth-quarter EPS of $0.65 as reported; $0.63 adjusted EPS, a 12.5% increase Adjusted consolidated margin expansion and best-ever fourth-quarter and full-year wireless service EBITDA margins Strong cash flows with $9.2 billion in reported cash from operations and $3.1 billion in free cash flow in fourth quarter; full-year reported cash from operations of $35.9 billion and free cash flow of $15.9 billion Full-year capital investment 1 of $20.7 billion

4 Highlights and Consolidated Results million wireless net adds; 1.6 million branded (postpaid and prepaid) net adds 4G LTE network coverage expands to 355 million POPs 2.2 million U.S. wireless net adds with gains in every category Postpaid churn of 1.18% and total churn of 1.50%, both down year over year 638,000 Mexico wireless branded net adds Business Solutions service revenues down slightly year over year Strategic business services revenues of $2.8 billion, up 10.3% and up 12.4% when adjusted for foreign exchange 214,000 U.S. DIRECTV net adds; total video subscribers down slightly integration-related costs and other expenses, operating income was $7.1 billion versus $5.0 billion; and operating income margin was 16.8%, up 230 basis points from a year ago. Fourth-quarter 2015 net income attributable to AT&T totaled $4.0 billion, or $0.65 per share, compared to a net loss of $4.0 billion, or $(0.77) per share, in the year-ago quarter. Adjusting for the $0.22 non-cash actuarial gain on benefit plans from the annual remeasurement process and $0.20 of costs primarily for merger- and integration-related items, earnings per share was $0.63 compared to an adjusted $0.56 in the year-ago quarter, an increase of 12.5%. Reported cash from operating activities was $9.2 billion in the fourth quarter, and capital expenditures totaled $6.1 billion, or $6.8 billion when including purchases in Mexico with favorable payment terms. Free cash flow cash from operating activities minus capital expenditures was $3.1 billion. 192,000 total IP broadband net adds CONSOLIDATED FINANCIAL RESULTS AT&T s consolidated revenues for the fourth quarter totaled $42.1 billion, up more than 22% versus the year-earlier period largely due to the acquisition of DIRECTV. Compared with results for the fourth quarter of 2014, operating expenses were $34.6 billion versus $39.9 billion; operating income was $7.5 billion versus $(5.5) billion; and operating income margin was 17.9% versus (15.9)% in the year-ago quarter. When adjusting for amortization, merger- and FULL-YEAR RESULTS For full-year 2015, compared with 2014 results, AT&T s consolidated revenues totaled $146.8 billion versus $132.4 billion, up 10.8% for the year. Operating expenses reflect actuarial gains and losses on benefit plans and were $122.0 billion compared with $120.2 billion, up 1.5%; net income attributable to AT&T was $13.3 billion versus $6.4 billion; and earnings per diluted share was $2.37, compared with $1.24.

5 Highlights and Consolidated Results 3 With adjustments for both years, operating income was $27.7 billion versus $23.1 billion; operating income margin was 18.8% versus 17.5%; and earnings per share totaled $2.71, compared with $2.56, an increase of 5.9%. AT&T s full-year reported cash from operating activities was $35.9 billion, up from $31.3 billion in Capital expenditures, including capitalized interest, totaled $20.0 billion, or $20.7 billion when including purchases in Mexico with favorable payment terms, versus $21.4 billion in Full-year free cash flow was $15.9 billion compared to $9.9 billion in 2014, a 60% increase. The free cash flow dividend payout ratio for the full year was 64%. OUTLOOK AT&T provided long-term guidance following its acquisition of DIRECTV, and there is no change to that guidance. Specifically, in 2016, the company expects: Double-digit consolidated revenue growth Adjusted EPS growth 2 in the mid-single digit range or better Stable consolidated margins with ramp in Mexico investment Capital spending in the $22 billion range Free cash flow growth with a dividend payout ratio 3 in the 70s% 1 Includes purchases in Mexico with favorable payment terms. 2 Expected range excludes adjustments for non-cash mark-to-market benefit plan adjustments, merger integration costs and other adjustments that are not reasonably estimable at this time. 3 Free cash flow dividend payout ratio is dividends divided by free cash flow.

6 Business Solutions 4 Business Solutions Icon to come The Business Solutions segment provides both wireless and wireline services to business customers and individual subscribers who purchase wireless services through employer-sponsored plans. AT&T s wireless and wired networks provide complete communications solutions to these customers. AT&T s business customer revenues include results from enterprise, public sector, wholesale and small/midsize customers. Business & Mobility Total fourth-quarter revenues from business customers were $18.2 billion, down 2.7% versus Consumer Wireless the year-earlier quarter. International Entertainment & Revenues were impacted by declines Internet in legacy Services services and equipment sales, which more than offset growth in mobility service and strategic business services revenues. When adjusting for the impact of foreign exchange pressures, total revenues would have decreased 2.3%. Fourth-quarter operating expenses were $14.5 billion, down 5.5% versus the fourth quarter of Operating income totaled $3.7 billion, up 9.7% year over year. Fourth-quarter operating income margin was 20.4%, up from 18.1% in the year-earlier quarter with wireless and IP revenue growth and cost efficiencies offsetting declines in legacy services. Business wireless revenues were down 1.9% year over year to $10.1 billion due to lower equipment revenues. Wireless service revenues were up 1.3% year over year, reflecting smartphone and tablet gains as well as continued customer adoption of Mobile Share Value SM plans. At the end of the fourth quarter, AT&T had 73.7 million business wireless subscribers. The company added 353,000 postpaid subscribers and 1.2 million connected devices in the fourth quarter. Postpaid business wireless subscriber churn was 1.10%, compared to 1.08% in the year-ago quarter. In business wireline, declines in legacy products and equipment revenues were somewhat offset by continued growth in strategic business services. Total business wireline revenues were $8.1 billion, down 3.8% year over year. Total wireline data revenues, which include strategic business services, declined slightly. Data revenues now make up nearly 59% of Business Solutions wireline revenues.

7 Business Solutions 5 Revenues from strategic business services, the next generation wireline capabilities that lead AT&T s most advanced business solutions including VPNs, Ethernet, cloud, hosting, IP conferencing, voice over IP, MIS over Ethernet, U-verse and security services grew 10.3% versus the year-earlier quarter and 12.4% when adjusting for the impact of foreign exchange. These services represent an annualized revenue stream of $11 billion. During the quarter, the company also added 21,000 high-speed IP broadband business subscribers. Total business broadband had a loss of 18,000 subscribers in the quarter. BUSINESS INNOVATION Through its powerful global networks, AT&T provides integrated solutions to business customers and offers a wide variety of wired and wireless products and services to increase businesses productivity. AT&T serves millions of business customers, from the largest multinational corporations to small businesses, in all major industries. AT&T continually develops products and services to ensure that its business customers have access to the latest technology solutions. In recent business news, AT&T: Added Digital Realty Trust and AWS GovCloud (US) to the company s expanding ecosystem for AT&T NetBond, AT&T s premier cloud networking solution, bringing the total number of partners to 13 and available cloud services with NetBond to 19. Announced an expansion of the company s long-term strategic relationship with IBM to bring businesses a full suite of advanced networking, application and hosting services. Announced a new smart cities framework launching in several initial spotlight cities and universities across the U.S. The new framework includes deploying smart cities technology as well as collaborating with alliance companies and smart cities organizations. Launched its sixth Foundry the AT&T Foundry for Connected Health which will open at the Texas Medical Center in Houston with a focus on digital health innovations that connect caregivers to patients. Continued its collaboration with Uber. AT&T and Uber promoted college football streaming in connected car rides in four cities, letting passengers watch live college football games from in-car tablets during their rides. AT&T also provided eligible Uber driver-partners an additional 1GB of data on their AT&T personal mobile devices with AT&T Work Platform. Closed significant business deals with Arby s, Copart, Crawford & Company, Navy Federal Credit Union and Sports Authority. Continued momentum for AT&T Switched Ethernet on Demand, which is available in more than 170 cities. AT&T has signed more than 450 customers to date.

8 Entertainment Group 6 Entertainment Group AT&T s Entertainment Group provides entertainment, high-speed Internet and communications services predominantly to residential customers in the United States. Entertainment & Internet Services Total revenues were $13.0 billion, up 132% versus the year-earlier quarter mostly due to the acquisition of DIRECTV. Also contributing to that gain was continued strong growth in consumer IP broadband and video, which more than offset lower revenues from legacy voice and data products. The company has aligned DIRECTV s revenue recognition for new customer promotional offers to AT&T practices. The company will now recognize satellite revenues from customers reflecting the amounts billed over the course of a customer contract, resulting in a change to the timing, but not to the total revenues recognized. Recognition of expenses will not change. The fourth-quarter impact of this change resulted in lower revenues by about $300 million and had a corresponding impact on income and margins. Fourth-quarter operating expenses were $11.5 billion. Operating income totaled $1.4 billion, an increase from a year-ago loss of $294 million. Fourth-quarter operating income margin was 11.1%, up from (5.3)% in the year-earlier quarter with satellite and IP revenue growth and cost efficiencies largely offsetting TV content cost pressure and declines in legacy wireline services. Total video subscribers were down slightly in the quarter. The company added 214,000 U.S. satellite subscribers in the fourth quarter. U-verse TV subscribers declined 240,000 as the company focused on profitability and increasingly emphasized satellite sales. The company ended the quarter with 25.4 million video subscribers. The Entertainment Group had a net gain of 171,000 IP broadband subscribers in the fourth quarter. Total broadband subscribers were down 37,000 in the quarter due in part to fewer U-verse promotions and declining U-verse TV subscribers.

9 Entertainment Group 7 Total company IP broadband subscribers including business customers at the end of the quarter were 13.3 million. Total company IP broadband subscribers increased by 192,000. Total company broadband subscribers declined by 54,000. ENTERTAINMENT GROUP INNOVATION In recent news, the company: Announced AT&T now offers ultra-fast Internet up to 1 gigabit per second over its all-fiber AT&T GigaPower network and plans to double the number of customer locations by the end of AT&T GigaPower is now available in 20 metro areas, and AT&T has announced plans to offer service in parts of 36 additional metro areas for a total of 56 metro areas served. Announced with Starwood Hotels & Resorts Worldwide, Inc. an agreement designating DIRECTV as Starwood s preferred video and audio provider in the United States, dramatically expanding in-room entertainment options to help Starwood s always-connected guests disconnect and make the most of their downtime. This agreement gives Starwood s guests access to DIRECTV s exclusive NFL SUNDAY TICKET, programming for the four major sports leagues and to nearly 100 HD channels, greatly enhancing the in-room guest experience by providing more of the comforts of home while on the road. Introduced a new offer that gives customers $10 off their monthly DIRECTV bills when adding AT&T Digital Life home security and automation services. The discount is stackable. It works with other offers, including the All in One plan for DIRECTV with wireless service from AT&T. Announced a new distribution agreement with A+E Networks to continue providing A+E Networks to both AT&T s U-verse TV and DIRECTV s national subscriber base under terms that reflect AT&T s new scale and status as the largest pay TV provider in the world. Unveiled AT&T AUDIENCE Network s newest sports show with the Nov. 18 premiere of Undeniable with Joe Buck. Joe Buck sits down with some of the best in sports. The lineup features everyone from hockey legends to Olympic athletes. One of the most well-known sportscasters, Buck has been the lead play-by-play voice for Major League Baseball, the USGA and the National Football League on Fox.

10 Consumer Mobility 8 Consumer Mobility Icon to come Business & Mobility Text The Consumer to come Mobility segment provides nationwide wireless service to consumer, wholesale and resale subscribers located in the United States or in U.S. territories. Services use our U.S. wireless network to provide voice and Consumer Wireless data services, including International Entertainment & high-speed Internet, video Internet entertainment Services and home monitoring services. Total revenues from Consumer Mobility customers totaled $8.7 billion, down 8.1% versus the year-earlier quarter, reflecting declines in equipment revenues from lower handset volumes and in postpaid service revenues due to the success of Mobile Share Value plans and migrations to business plans. Fourth-quarter operating expenses were $6.6 billion, down 14.2% versus the fourth quarter of 2014 reflecting lower equipment sales and greater wireless efficiencies. AT&T s Consumer Mobility operating income totaled $2.1 billion, up 17.4% versus the fourth quarter of Fourth-quarter operating income margin was 24.5%, up from 19.1% in the year-earlier quarter with lower volumes and cost efficiencies more than offsetting the pressure from customers choosing Mobile Share Value plans. Consumer Mobility EBITDA margin was 35.2%, compared to 29.4% in the fourth quarter of (EBITDA margin is operating income before depreciation and amortization, divided by total wireless revenues.) EBITDA service margin was 43.2%, up from 37.5% in the year-ago quarter. (EBITDA service margin is operating income before depreciation and amortization, divided by total service revenues.) At the end of the fourth quarter, AT&T had 55.0 million Consumer Mobility subscribers. The company added 671,000 total subscribers in the quarter with 174,000 postpaid subscribers, 469,000 prepaid subscribers and 50,000 reseller subscribers. Connected device subscribers declined by 22,000 in the quarter. Total Consumer Mobility churn was 1.97% versus 2.21% in the fourth quarter of 2014, in part reflecting improvements in prepaid churn. Consumer Mobility postpaid churn was 1.31%, compared to 1.43% in the year-ago quarter.

11 Consumer Mobility 9 CONSUMER MOBILITY INNOVATION AT&T is a leader in mobile Internet, delivering expanded choice in devices, services and applications. In recent weeks, AT&T: Launched the AT&T Unlimited Plan for new and existing AT&T consumer wireless customers who have or add AT&T DIRECTV or AT&T U-Verse TV. The plan offers more data for watching video, playing games and surfing the web on their mobile devices. Expanded its commitment to the future of connected car technology. AT&T works with 9 of the top automakers and recently: Announced an expanded relationship with Ford with plans to power more than 10 million Ford vehicles with AT&T 4G LTE in North America by Announced the renewal of a multi-year agreement bringing high-speed internet to BMW vehicles in North America.

12 International 10 International Icon to come The International segment provides wireless services in Mexico and satellite entertainment services in Latin America. The International segment is subject to foreign currency fluctuations. Total revenues from International totaled $1.8 billion, reflecting the first full quarter since the acquisition of DIRECTV Latin America. Fourth-quarter operating expenses were $2.1 billion. AT&T s International operating loss totaled $259 million. Fourth-quarter operating income margin was (14.0)%. AT&T MEXICO AT&T owns and operates a wireless network in Mexico. Formed by the combination of Iusacell and Nextel Mexico, AT&T Mexico has a leading spectrum position in the country. AT&T covered about 44 million people in Mexico with 4G LTE at the end of the fourth quarter and expects to cover 100 million POPs by the end of Total revenues from AT&T Mexico totaled $643 million, up 10.7% sequentially, reflecting increased subscriber growth. Fourth-quarter operating loss was $258 million, reflecting investment in operations, network and subscriber acquisition. AT&T Mexico added 130,000 postpaid subscribers and 508,000 prepaid subscribers in the quarter. AT&T Mexico had nearly 8.7 million total subscribers at the end of the quarter. DIRECTV LATIN AMERICA AT&T is a leading provider of pay television services in Latin America and owns 100% of its satellite operations serving Argentina, Chile, Colombia, Ecuador, Peru, Uruguay, Venezuela and parts of the Caribbean. It also owns approximately 93% of Sky Brasil and 41% of Sky Mexico. Sky Mexico financial results are accounted for as an equity method investment. DIRECTV Latin America revenues reflect foreign currency exchange rates, including AT&T s move to the SIMADI rate in Venezuela. Total revenues from Latin America were $1.2 billion. When compared to DIRECTV s fourth-quarter 2014 results for Latin America excluding Puerto Rico,

13 International 11 revenues in this region were down 28.7% year over year due to foreign exchange pressures. On a constant currency basis, fourth-quarter revenues in DIRECTV Latin America grew 15% year over year. Fourth-quarter subscriber net losses were 34,000, driven by declines in Brazil. Total subscribers at the end of the quarter were 12.5 million. Sky Mexico had approximately 7.1 million subscribers as of September 30, 2015, bringing the total subscribers in the region to 19.6 million. INTERNATIONAL HIGHLIGHTS By the end of 2015, AT&T Mexico had: Reached 44 million people covered with high-speed 4G LTE mobile Internet, ahead of its commitment to cover 40 million people by the end of the year. Nj Nj Opened nearly 1,000 new points-of-sale throughout the country and introduced the AT&T brand in 32 markets. The company also promoted a new service excellence standard with the internal launch of the Our Promise campaign last summer.

14 AT&T Mobility 12 AT&T Mobility Icon to come Text AT&T s to U.S. come mobility operations are now divided between the Business Solutions and Consumer Mobility segments. For comparison purposes, the company is providing supplemental information for its total domestic mobility operations. Consumer Wireless In the quarter, AT&T reported strong subscriber gains and best-ever fourth-quarter EBITDA International service margins. Highlights included: Entertainment & Internet Services Total wireless revenues were down 4.9% year over year to $18.9 billion, largely due to decreases in equipment revenue. Wireless equipment revenues decreased 14.9% to $4.1 billion, due to lower sales volumes in the quarter. Wireless service revenues of $14.8 billion were down 1.7% year over year, reflecting continued customer adoption of Mobile Share Value plans. Fourth-quarter wireless operating expenses totaled $14.5 billion, down 10.9% reflecting greater operating efficiencies and lower sales volumes. Wireless operating income was $4.4 billion, up 22.5% year over year largely due to stabilizing service revenues, lower smartphone upgrade volumes and lower expenses driven by efficiencies. The continued adoption of AT&T Next on non-subsidy offerings and of Mobile Share Value plans is reflected in postpaid service ARPUs (average revenues per user); however, as expected, phone-only ARPU with AT&T Next monthly billings increased year over year. Phone-only postpaid ARPU decreased 2.0% versus the year-earlier quarter; but phone-only postpaid ARPU with AT&T Next monthly billings increased 4.6% year over year. As expected, wireless margin improvement reflects adoption of AT&T Next, record BYOD customers, lower smartphone upgrade volumes and continued efforts to drive operating costs out of the business. AT&T s reported fourth-quarter wireless operating income margin was 23.2%, versus 18.0% in the year-earlier quarter. Wireless EBITDA margin was 33.9%, compared to 27.9% in the fourth quarter of (EBITDA margin is operating income before depreciation and amortization, divided by total wireless revenues.) Wireless EBITDA service margin was the best ever for a fourth quarter at 43.2%, up from 36.7% in the yearago quarter. Full-year 2015 wireless service EBITDA margin also was its best ever at 46.7%. (EBITDA service margin is operating income before depreciation and amortization, divided by total service revenues.)

15 AT&T Mobility 13 In the fourth quarter, AT&T posted a net increase in total wireless subscribers of 2.2 million, with gains in every customer category, to reach nearly 129 million in service, up 8.1 million over the past year. The company added 526,000 postpaid subscribers and 469,000 prepaid subscribers with gains in both Cricket and GoPhone. AT&T also added 1.2 million connected devices and 50,000 reseller subscribers in the quarter. The company had 995,000 branded net adds (both postpaid and prepaid) in the quarter, including 213,000 branded phone net adds. Nearly 1 million total branded smartphones were added to the base. The company added 696,000 postpaid tablet and computing devices in the quarter. Postpaid churn was 1.18% compared to 1.22% in the year-ago quarter. Total churn was 1.50%, down from 1.59% year over year as improvements in postpaid and prepaid churn reflected strong customer retention in a competitive market. About 97% of AT&T s total postpaid base is on Mobile Share, AT&T Family Talk or business plans. The company had 9.2 million branded smartphone gross adds and upgrades in the quarter, including 1.8 million prepaid smartphones. The postpaid upgrade rate in the quarter was 7.6%. Sales on AT&T Next also increased during the quarter as 72% of all postpaid smartphone gross adds and upgrades chose AT&T Next. The company also had a record 672,000 BYOD gross adds. That means 81% of smartphone transactions in the quarter were non- subsidy. About 46% of the company s postpaid smartphone base is currently on AT&T Next, with almost 70%, or 40 million, of postpaid smartphone subscribers on no-device-subsidy Mobile Share Value plans. At the end of the quarter, 88%, or 58.1 million, of AT&T s postpaid phone subscribers had smartphones. Smartphones accounted for about 96% of phone sales during the quarter. AT&T s ARPU for smartphones is about twice that of nonsmartphone subscribers. At the end of the fourth quarter, 89% of AT&T s postpaid smartphone customers had an LTE-capable device. AT&T continues to reposition the customer experience with attractive Mobile Share Value pricing for customers who choose to transition from the traditional devicesubsidy model. The total number of Mobile Share accounts was up 15% year over year to reach 21.2 million with an average of about 3 devices per account. About 81% of postpaid smartphone subscribers are on Mobile Share Value plans. About 36% of Mobile Share accounts are on 15 gigabyte or larger data plans. In total, nearly 90% of postpaid smartphone subscribers are on usage-based data plans (tiered data, Mobile Share and other plans).

16 Business & Mobility Consumer Wireless International International Business & Mobility Consumer Entertainment Wireless & Internet Services First-Quarter 2016 Earnings Date: April 26, 2016 AT&T will release first-quarter 2016 earnings on April 26, 2016, after the market closes. The company s InvestorBriefing and related earnings materials will be available on the AT&T website at by 4:30 p.m. Eastern time. AT&T will also host a conference call to discuss the results at 4:30 p.m. Eastern time the same day. Dial-in and replay information will be announced on First Call approximately eight weeks before the call, which will also be broadcast live and will be available for replay over the Internet at Business & Mobility International AT&T InvestorBriefing The AT&T InvestorBriefing is published by the Investor Relations staff of AT&T Inc. Requests for further information may be directed to one of the Investor Relations managers by phone at Correspondence should be sent to: Investor Relations AT&T Inc. 208 S. Akard Street Dallas, TX Consumer Wireless Entertainment International & Internet Services Cautionary Language Concerning Forward-Looking Statements Information set forth in this InvestorBriefing contains financial estimates and other forward-looking statements that are subject to risks and uncertainties, and actual results may differ materially. A discussion of factors that may affect future results is contained in AT&T s filings with the Securities and Exchange Commission. AT&T disclaims any obligation to update or revise statements contained in this InvestorBriefing based on new information or otherwise. This InvestorBriefing may contain certain non-gaap financial measures. Reconciliations between the non-gaap financial measures and the GAAP financial measures are available on the company s website at address: [email protected] Senior Vice President-Investor Relations Mike Viola Investor Relations Staff Jamie Anderson Matt Gallaher Tim Bever Shelly Mathews Michael Black Amy McCracken Stacy Byrd Martin Sheehan Marcio Cardoso Jesse Tang Jeston Dumas Dianne Tran-Duong Kent Evans Chris Womack